POWER July 2016 - 68

COMMENTARY
China's Coal Industry: Status
and Outlook
Niu Dongxiao, Song Zongyun, and Xiao Xinli
T
he years between 2002 and 2012 are called Golden Decade
for the coal industry in China. After May 2012, the coal
industry fell into depression.
In the Golden Decade, a large amount of social capital inflow
was attracted by increasing market demand and coal prices, but
it also resulted in overproduction. The recession in downstream
industries, including the steel industry and building materials
industry, and the squeeze from non-fossil energy sources mainly
contributed to the slump in the coal industry. The coal industry
in China is undergoing a very tough period.
Challenges
Here is a brief summary of some of the coal industry's challenges.
Demand and Supply Decline. For the first 11 months in
2015, the coal supply in China was 3.55 billion tons, declining
by 14.67% compared to 2014. For the first 10 months of 2015,
coal demand was 3.23 billion tons, a drop of 4.7%. The highspeed
growth in investment and excessive expansion in capacity
from 2002 to 2012 resulted in unbalance between coal supply
and demand. With continued high levels of coal production even
since 2012, the supply-demand ratio in 2014 reached its peak at
the value of 1.18.
Price Slump. Since 2012 coal prices in China have been on
the decline. The price of coal with a calorific value of 5,500
kcal/kg at Qinghuangdao Port fell by 20.89%, 0%, 13.93%,
and 28.57% each year from 2012 to 2015. The price of coal in
2015 dropped to 370 CNY/ton, which was back to the level it
saw in 2004.
Benefits Shrink. In 2015, more than 85% of coal enterprises
were in a deficit state. Profit declined to 40.08 billion CNY, equal
to the level in 2005. And, according to the latest data from the
China National Coal Association, the average asset-liability ratio
in the coal industry has reached 67.7%-the highest level in the
past 16 years.
Investment Declines. Weak coal prices and lower profits have
compressed investment in the industry. Fixed-asset investments
slowed down beginning in 2013. In 2015, investment was 400.8
billion CNY, 14.4% lower than in 2014.
Opportunities
To be optimistic, opportunity coexists with the challenges.
Electric Power Substitution. Electric power substitution
means to substitute electricity for coal burning in end-use
processes. Using electricity can improve coal-use efficiency,
decrease decentralized coal pollution, and rationalize energy
consumption. It can improve the consumption ratio of thermal
coal in total consumption, which will stimulate the rational utilization
of coal. What's more, substituting electricity for decentralized
coal use benefits larger and more efficient enterprises
and contributes to eliminating less-modern facilities.
Belt & Road. India and Southeast Asia import large amounts
68
of coal. The Silk Road Economic Belt and the 21st Century Maritime
Silk Road (Belt & Road)-a development strategy proposed
by President Xi Jinping to increase exports, especially to Eurasia-can
increase China's coal exports to these countries. In
addition, the infrastructure in some underdeveloped areas like
Africa and Central Asia can't satisfy their needs for economic
development. China can provide them with steel, building materials,
and other energy-intensive products, which can stimulate
domestic coal consumption and then relieve the pressure
of oversupply. Belt & Road also provides a big chance for coal
enterprises in China to exploit the international coal market and
participate in international competition.
Energy Internet. The energy internet is an energy equivalence
exchange and sharing network, which links the coal network,
oil network, gas network, and other energy networks by
using information technology, intelligent management technology,
to realize energy bidirectional flows. The energy internet is
end user-focused, so those who have the most customers will
win. With the background of an energy internet and electric
power system reform in China, coal enterprises can set up electricity
companies and sell electricity. This provides coal enterprises
with a chance to dominate both the coal and end users in
energy market.
Support Policies
The Chinese government has issued lists of policies to help
the coal industry recover, which are mainly focused on eliminating
" backward capacity " (polluting, unsafe, inefficient, and
other suboptimal enterprises), controlling the amount of coal
produced ( " yield control " ), supporting clean coal development,
and the like. For example, Opinions on Solving Excessive Capacity
and Recovering Coal Industry (issued by State Council on
February 5, 2016) indicates that backward capacity that doesn't
conform to industrial policies will be eliminated. Notifications
on Implementing the Treatment Measures on Illegal Coal Mines
(issued by National Development and Reform Commission on May
26, 2015) points out that if thermal power enterprises purchase
coal produced by illegal coal mines, the amount they are allowed
to generate will be reduced, as punishment.
The coal industry in China has suffered from serious depression
since 2012, and the tragedy continues in 2016. Fortunately,
the opportunities above have provided great support, and the
coal industry is striving to work its way out of the depression.
The coal industry in China still has bright prospects. ■
-Niu Dongxiao, PhD, a professor at North China Electric Power
University (NCEPU), has been named distinguished Cheung
Kong Scholar by the Ministry of Education and has outstanding
achievements in the field energy management, load forecasting,
energy system evaluation, and more. Song Zongyun and
Xiao Xinli are doctoral students in the School of Economics and
Management, NCEPU.
www.powermag.com
POWER | July 2016
http://www.powermag.com
POWER July 2016

Table of Contents for the Digital Edition of POWER July 2016
